Tips for buying a yacht with a deposit. How not to lose it?

You probably know that in the yachting industry, the purchase of a vessel is divided into parts: an advance payment (deposit) and a main payment. We will tell you about cases when sellers deprived buyers of a down-payment, and at the same time the boat remained with the vender. The article was prepared by Itboat editors and Interlegal lawyers.

Today, a 10% deposit of the vessel value is the industry standard. Still, you can always agree on a different advance.

Let’s start with the basic principles. Most yacht purchase transactions are accompanied by a 10% of deposit of the final vessel price. To protect both parties, the Advance is placed in a special escrow account of a third party (usually the funds are placed with a yacht broker from the buyer or with a lawyer). An escrow account is a temporary account where the seller receives money only when certain conditions are met.

After your personal inspection of the boat and sea test-drives (usually about 14 days), in case of violation of the terms of the purchase agreement, the escrow agent is obliged to return the purchaser’s deposit within the period specified in the agreement.

Since the process of concluding the contract and buying a yacht takes place within a fairly short time, in practice, most unsuccessful transactions result in a court dispute to find out who breached the agreement and whether the prepayment should be returned. Therefore, it is extremely important to find out immediately what will happen to your advance in case you refuse to buy a vessel. Also, make sure that money are placed in a secure escrow account.

Another important point, make sure that the selling person is really owns 100% of the vessel and that he or she has no outstanding debts, such as loan payments, mooring fees, insurance.

Azimut Benetti shipyard precedent

2019 year. The Italian shipyard has received an advance of 1 million euros for the “booking” of two yachts before a certain date. Ultimately, this deposit should be the first money charge for one of the booked yachts. But then the irreparable happened: the shipyard sells one of the yachts ahead of schedule and offers the buyer a third boat. The client does not make a final choice (between options 2 and 3) and part of the advance goes to pay for the construction of boat number 3.

Later it turned out that the initial-payment for the construction of the yacht is half the amount of the advance – 500,000 euros. The other half remained with the shipyard as a non-refundable deposit. The purchaser sued. Since there was no clear agreement between the seller and the buyer on the non-refundability of the advance, the court of first instance decided to return 500,000 euros to the client. The shipyard appealed and lost. The judge noted that the down-payment is a retention (booking) of two yachts for the buyer, and not a condition for concluding a deal in the future.

The Griffon Case

2013 year. $22 million Griffon megayacht. 10% deposit – 72 hours after signing the contract. After 4 days, the seller terminated the agreement and applied to arbitration with a demand to recover $2 million from the buyer as damages for breach of deal. After litigation, arbitration ordered the purchaser to pay an amount much less than indicated as a advance. The position of the court was that the fact of non-payment of the advance cannot be the reason for the reimbursement of the full amount of the down-payment. Still, the vender filed an appeal and the court sided with him. Reason: non-payment of the deposit is beneficial to the buyer if he deliberately did not intend to fulfill the terms of the contract.

Today, in European practice, cases have become more frequent when the seller seeks reimbursement of the full amount of the advance through the courts. Please read your sales contract.

Bartenstein, Birkenstein and Blankenstein precedent

Let’s go back to 1984. The seller instructs brokers to arrange the sale of three vessels. Brokers find a buyer for all boats at once. The contract provided for the client to pay a 10% prepayment upon signing the deal. Also, the vender could terminate it and withhold the paid deposit in case of non-payment of funds. The purchaser refused to sign this contact and sent his version of the agreement. The parties did not find a common way out of the situation, so the document was not signed.

The seller unilaterally sues the buyer for damages in the amount of the deposit – $236,500. The client loses two instances, since it turned out that there was no confirmation of the fact that the parties did not endow the negotiations with contractual force until a formal contract was signed. Thus, the appeal found that the sale and purchase agreement was concluded without signing the deal, that is, verbally.

SELENE G case

1981 year. According to the agreement, within 48 hours after signing, the purchaser had to pay a deposit of 10%. The buyer violated the terms, thereby violating the terms of the contract. The seller terminated the deal, and the client paid the “losses”.

Today, the Association of Mediterranean Brokers regulates the period for paying the deposit within four banking days from the date of signing the contract.